Iraq: Sabotage Strains World Oil Supply
June 16, 2004 2011 GMT
stratfor.biz
Summary
Two new -- and highly successful -- bomb attacks June 15 and 16 against Iraq's oil infrastructure shut down the country's southern oil exports. The result will be a hampering of Iraqi oil production until the security situation improves, setting the stage for the United States to tap its Strategic Petroleum Reserve.
Analysis
A bomb attack against Iraq's primary oil export line June 16 -- the third in the past 48 hours -- succeeded in taking the pipe out of operation.
This attack -- the most significant assault against the Iraqi oil infrastructure since the end of the 2003 war -- reduces exports from 1.85 million barrels per day to 200,000 bpd. The available oil comes exclusively from the country's northern export route via Turkey. Considering the tight oil supply/demand backdrop to the global economy, a sustained cutoff of Iraqi exports raises the possibility of a supply shortage that could be mitigated only by developed countries tapping their emergency petroleum stocks.
Iraqi Prime Minister Iyad Allawi estimates that sabotage has cost Iraq some $200 million in lost revenues during the past seven months.
Perhaps more important than disruption in the Iraqi oil supply, is the "who" behind the attack. Past attacks against Iraq's southern export line and the country's Persian Gulf loading platforms were claimed by Abu Musab al-Zarqawi, a leading jihadist. If al-Zarqawi's affiliates are found to be responsible for the recent attacks, there is little reason to expect them to stop in the near term. Ultimately, purging the country -- or at least the southern pipeline route -- of foreign jihadists is an achievable goal.
There are other suspects in the bombing. In the past few weeks, the United States' political arrangement with the Iranians has all but broken down. The Iranian military considered oil assets to be legitimate targets during the 1980s war between Iran and Iraq. Since the locations of both recent Iraqi attacks are within a few miles of the Iranian border, Iran might be starting to register its displeasure with American plans. If this is the case, Iraq's southern oil exports could be sealed off for months -- or longer.
Not only did the southern attacks occur in the most secure part of the country, they are imminently repeatable. Unlike the lengthy northern oil export route -- which transits Baiji, a Sunni city known for Baathist guerrilla activity -- the southern route is 70 miles long and lies in either unpopulated or Shiite-dominated territory. Attacks in Shiite territory did not occur until foreign jihadists began copying Baathist attack techniques in April.
Iraq's north has not escaped unscathed. An attack occurred early June 16 on the northern export route 20 miles west of Kirkuk, though it did not damage the pipeline enough to disrupt exports. Later in the day, guerrillas shot and killed Ghazi Talabani, security chief for the state-owned "Northern Oil Company." It is unclear whether Talabani was targeted because of his relationship to Kurdish leader Jalal Talabani of the Patriotic Union of Kurdistan (his second cousin), his position in the new government or his position within the energy industry. Guerrillas consider oil officials to be targets as viable as the oil infrastructure itself.
These disruptions in the oil supply come at a bad time for the global economy. Because of breakneck economic growth in the United States, Japan and China, global demand -- as estimated by the International Energy Agency -- is expected to hit a record high of 81.1 million bpd in 2004. To meet this demand, OPEC has suspended its normal quota program and unofficially requested that members pump as much oil as possible -- they are. OPEC formally requested June 16 that non-cartel members Mexico, Angola, Oman and Russia also increase production to meet burgeoning demand; they had already been doing so for months.
Barring unsustainable "surge" production -- which requires producers to push their fields past capacity, risking permanent damage -- the world has as much oil as it is going to get. In the case of Iraq, the world might have already gotten everything it is going to get for the near future.
The global economy can probably survive in the near term without Iraqi crude. Any additional disruptions would cause a global shortage. There is no dearth of disruption candidates.
Islamic militants operating in Saudi Arabia could potentially disrupt oil exports -- although for political, economic and military reasons they seem to prefer targeting expatriates who work in the oil industry.
Strikes in Nigeria, such as those that occurred June 9-11, could take more than half of Nigeria's 2 million bpd temporarily offline.
Political violence stemming from Venezuela's imminent recall referendum of President Hugo Chavez could again suspend that country's production.
Even Russia -- with a comparatively idyllic oil industry in terms of security -- has witnessed bombing attacks that could disrupt the export of as much as 3 million bpd.
If oil production disruption occurs in any of these countries -- particularly in Russia or Saudi Arabia, the world's two largest producers -- the result would be an immediate supply shortage. Since no country has the capacity to increase production, the developed world would be forced to open the taps on emergency oil stocks -- including the United States' Strategic Petroleum Reserve -- until normal exports could resume. |
